3/4 HANG SENG FY04 PT 1

HSBC Holdings PLC
28 February 2005

                               HANG SENG BANK LIMITED
                             2004 RESULTS - HIGHLIGHTS

   •Operating profit before provisions up 3.1 per cent to HK$11,830 million 
    (HK$11,475 million in 2003).

   •Operating profit up 18.4 per cent to HK$12,644 million (HK$10,683 million
    in 2003).

   •Pre-tax profit up 20.0 per cent to HK$13,367 million (HK$11,137 million
    in 2003).

   •Attributable profit up 19.5 per cent to HK$11,395 million (HK$9,539
    million in 2003).

   •Return on average shareholders' funds of 27.6 per cent (23.4 per cent in
    2003).

   •Total assets up 9.1 per cent to HK$548.6 billion (HK$503.0 billion at 31
    December 2003).

   •Earnings per share up 19.4 per cent to HK$5.96 (HK$4.99 per share in
    2003).

   •Fourth interim dividend of HK$1.90 per share; total dividends of HK$5.20
    per share for 2004 (HK$4.90 per share in 2003).

   •Total capital ratio of 12.0 per cent (13.2 per cent at 31 December 2003);
    tier 1 capital ratio of 10.8 per cent (11.3 per cent at 31 December 2003).

   •Cost:income ratio of 26.3 per cent (25.4 per cent in 2003).

Hang Seng Bank attributable profit up 19.5 per cent to HK$11,395 million

Hang Seng Bank Limited (the bank) and its subsidiary and associated companies
(Hang Seng) reported a profit attributable to shareholders of HK$11,395 million
for 2004, representing growth of 19.5 per cent compared with 2003. Earnings per
share of HK$5.96 was 19.4 per cent higher than 2003.

Operating profit before provisions rose by HK$355 million, or 3.1 per cent, to
HK$11,830 million. The 22.4 per cent growth in other operating income outweighed
a 4.8 per cent fall in net interest income and an 8.2 per cent rise in operating
expenses. Wealth management businesses in particular performed strongly, with
income growth of 35.1 per cent reflecting the strength of securities services,
retail investment product sales and private banking. Wealth management income
also benefited from the active stock market and positive investor sentiment.
Life insurance made further advances in market share and profitability as the
range of products providing protection and investment benefits was extended.
Trade services and credit cards also performed well in business volume and fees
and commissions. Dealing profits recorded strong growth from trading results, as
well as the provision of corporate treasury services and the packaging of
structured investment products. Net interest income fell despite the growth in
average interest earning assets and customer advances, reflecting the
exceptionally low HK dollar interest rates throughout the year that
significantly reduced deposit spreads. Loan margins, in particular mortgages and
corporate lending, were further squeezed amidst fierce market competition and
ample market liquidity.

Operating profit after provisions rose 18.4 per cent after accounting for the
release of HK$814 million in provisions for bad and doubtful debts, compared
with a charge of HK$792 million last year. Specific provisions showed a net
release of HK$2 million, compared with a net charge of HK$798 million last year.
This was the combined effect of lower new and additional charges, and higher
releases and recoveries from doubtful accounts. Credit card losses reduced
significantly, as bankruptcy and unemployment rates continued to fall. There was
a net release of provisions in respect of mortgages, reflecting the improvement
in delinquency, higher recoveries from disposal of repossessed properties and
substantial improvements in the negative equity position. This was the result of
the sharp rally in property prices, with strong demand in particular in the
primary sector, reflecting an improved debt servicing capability in the
improving economic environment. Corporate and commercial banking accounts also
showed a net release in provisions with substantially lower new charges as the
financial position of corporate customers continued to improve, in line with the
strong growth in the local economy. A total of HK$812 million was released from
general provisions during the year in light of historical loss experience and
the improving credit environment.

Profit before tax amounted to HK$13,367 million, which was HK$2,230 million, or
20.0 per cent, higher than 2003, after accounting for the surplus on property
revaluation and the share of profits from associated companies. The increase in
the share of associated companies' profit was attributable to Industrial Bank
Co., Ltd, in which the bank acquired an interest of 15.98 per cent in May 2004.

Attributable profit, after taxation and minority interests, rose by HK$1,856
million, or 19.5 per cent. Excluding the impact of the release in general
provisions and the related deferred taxation, attributable profit for 2004
increased by HK$1,191 million, or 12.5 per cent, over 2003.

Total assets grew HK$45.7 billion, or 9.1 per cent, to HK$548.6 billion at 31
December 2004. Advances to customers recorded an encouraging growth of 9.8 per
cent, mainly in advances to the industrial and commercial sectors and trade
finance, in line with the strong growth in regional trade flows. Card and
personal loans also reported robust growth. Private sector residential mortgages
rose slightly in a fiercely competitive market, while mortgages under the
suspended Government Home Ownership Scheme (GHOS) continued to fall. Customer
deposits, including certificates of deposit, rose by 5.3 per cent against last
year-end.

Shareholders' funds (excluding proposed dividends) rose by HK$3,352 million, or
9.3 per cent, to HK$39,552 million at 31 December 2004, attributable to the rise
in retained profits and property revaluation reserves.

The return on average total assets was 2.2 per cent (2.0 per cent in 2003). The
return on average shareholders' funds was 27.6 per cent, compared with 23.4 per
cent in 2003.

The advances to deposits ratio rose to 54.4 per cent at 31 December 2004
compared with 52.2 per cent at 31 December 2003, the effect of a faster paced
growth in customer advances than in customer deposits during 2004. Hang Seng
continued to maintain a strong liquidity position, with the average liquidity
ratio in 2004 (calculated in accordance with the Fourth Schedule of the Hong
Kong Banking Ordinance) at 47.2 per cent (46.2 per cent in 2003).

The total capital ratio at 31 December 2004 was 12.0 per cent (13.2 per cent at
31 December 2003) and the tier 1 capital ratio was 10.8 per cent (11.3 per cent
at 31 December 2003).

The cost:income ratio was 26.3 per cent, compared with 25.4 per cent in 2003.

The Directors have declared a fourth interim dividend of HK$1.90 per share,
which will be payable on Thursday, 24 March 2005 to shareholders on the Register
of Shareholders as of Wednesday, 16 March 2005. Together with the first three
quarters' interim dividends of HK$3.30 per share, the total distribution for
2004 will amount to HK$5.20 per share (HK$4.90 per share for 2003).

The total dividends for the year represent 87.2 per cent of the attributable
profit for 2004 (98.2 per cent in 2003).

Comment by David Eldon, Chairman

"Hang Seng achieved strong growth in 2004, supported by the recovery of Hong
Kong's economy. Attributable profit grew by 19.5 per cent to a record HK$11,395
million, underpinned by a robust increase in other operating income of 22.4 per
cent, and the release of provisions for bad and doubtful debts.

"The rise in other operating income resulted from the growth in investment
services income as we invested in our wealth management business. This more than
offset a drop in net interest income of 4.8 per cent, arising from the reduction
in deposit spreads caused by exceptionally low Hong Kong dollar interest rates.

"We made substantial progress during the year in the development of our Mainland
business with the completion of the acquisition of a 15.98 per cent interest in
Industrial Bank Co., Ltd. We are well positioned to take advantage of growth
opportunities arising from the liberalisation of the Mainland's financial
markets and we will continue to expand our network and services there.

"Hong Kong's economy is expected to grow steadily in 2005, supported by the
closer economic relationship with the Mainland. In the face of the challenges of
sustained margin pressure and intense competition we will build on our financial
strength, quality customer service and growing wealth management capabilities to
deliver value to our shareholders and customers."

Contents

The financial information in this news release is based on the audited
consolidated accounts of Hang Seng Bank Limited and its subsidiary and
associated companies for the year ended 31 December 2004.

Highlights of Results and Chairman's Comment
Contents
Consolidated Profit and Loss Account
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Economic Profit
Consolidated Cash Flow Statement
Financial Review
        Net interest income
        Other operating income
        Operating expenses
        Provisions for bad and doubtful debts
        Profit on tangible fixed assets and long-term investments
        Taxation
        Earnings per share
        Dividends per share
        Segmental analysis
        Cash and short-term funds
        Placings with banks maturing after one month
        Certificates of deposit
        Securities held for dealing purposes
        Advances to customers
        Provisions against advances to customers
        Non-performing advances to customers and provisions
        Overdue advances to customers
        Rescheduled advances to customers
        Repossessed assets
        Segmental analysis of advances to customers by geographical area
        Gross advances to customers by industry sector
        Long-term investments
        Investments in associated companies
        Other assets
        Current, savings and other deposit accounts
        Deposits from banks
        Other liabilities
        Shareholders' funds
        Capital resources management
        Liquidity ratio
        Reconciliation of cash flow statement
        Contingent liabilities, commitments and derivatives
        Cross border claims
Additional Information
        Statutory accounts and accounting policies
        Property revaluation
        Market risk
        Foreign currency positions
        Material related-party transactions
        Ultimate holding company
        Register of shareholders
        Proposed timetable for 2005 quarterly dividends
        News release

Consolidated Profit and Loss Account

                                                      Year ended 31Dec
Figures in HK$m                                         2004      2003

Interest income                                       12,471    12,846
Interest expense                                      (2,781)   (2,667)
Net interest income                                    9,690    10,179
Other operating income                                 6,363     5,198
Operating income                                      16,053    15,377
Operating expenses                                    (4,223)   (3,902)
Operating profit before provisions                    11,830    11,475
Provisions for bad and doubtful debts                    814      (792)
Operating profit                                      12,644    10,683
Profit on tangible fixed assets and long-term
  investments                                            432       461
Net surplus/(deficit) on property revaluation            148       (37)
Share of profits of associated companies                 143        30
Profit on ordinary activities before tax              13,367    11,137
Tax on profit on ordinary activities                  (1,764)   (1,423)
Profit on ordinary activities after tax               11,603     9,714
Minority interests                                      (208)     (175)
Profit attributable to shareholders                   11,395     9,539
Retained profits at 1 January                         19,720    19,440
Transfer from premises revaluation reserve
- depreciation charge on revaluation surplus              75        68
- realisation of revaluation surplus
  on disposal of premises                                  2         -
Transfer from investment properties revaluation 
  reserve
- realisation of revaluation surplus on disposal
  of investment properties                               141        23
Exchange and other adjustments                             4        18
Dividends                                             (9,942)   (9,368)
Retained profits at 31 December                       21,395    19,720

Figures in HK$

Earnings per share                                      5.96      4.99
Dividends per share                                     5.20      4.90

Consolidated Balance Sheet

Figures in HK$m                                At 31Dec04   At 31Dec03

Assets
Cash and short-term funds                          68,198       71,903
Placings with banks maturing after one month       16,231       18,029
Certificates of deposit                            33,590       28,683
Securities held for dealing purposes                1,866        1,232
Advances to customers                             251,873      229,466
Amounts due from immediate holding company
  and fellow subsidiary companies                   4,598       13,715
Long-term investments                             138,025      113,881
Investments in associated companies                 2,397          549
Tangible fixed assets                              11,469        9,565
Other assets                                       20,378       15,936
                                                  548,625      502,959

Liabilities
Current, savings and other deposit accounts       463,416      439,913
Deposits from banks                                 8,631        1,202
Amounts due to immediate holding company
  and fellow subsidiary companies                   3,928        2,412
Other liabilities                                  28,613       19,147
                                                  504,588      462,674

Capital resources
Minority interests                                    852          644
Share capital                                       9,559        9,559
Reserves                                           29,993       26,641
Proposed dividends                                  3,633        3,441
Shareholders' funds                                43,185       39,641
                                                   44,037       40,285
                                                  548,625      502,959

Figures in HK$

Net asset value per share                           23.03        21.07

Consolidated Statement of Changes in Equity

                                                               Year ended 31Dec
Figures in HK$m                                                  2004      2003

Shareholders' funds at 1 January                               39,641    43,085

Increase/(decrease) in revaluation reserve of premises          1,203      (285)
Deferred tax adjustment on revaluation of premises                 (6)      (80)
Increase/(decrease) in revaluation reserve of 
  investment properties
- bank and subsidiary companies                                   618      (273)
- associated company                                              154      (125)
Long-term equity investment revaluation reserve
- unrealised gains on revaluation                                 332       410
- realisation on disposal                                        (406)     (410)
Deferred tax adjustment on revaluation of long-term
   equity investment                                                -        (2)
Exchange and other adjustments                                      4        18
Net gains/(losses) recognised in shareholders' funds 
  for the year                                                  1,899      (747)
Profit attributable to shareholders for the year               11,395     9,539
Dividends declared or approved during the year                 (9,750)  (12,236)
Shareholders' funds at 31 December                             43,185    39,641

Economic Profit

Economic profit is calculated from profit after tax, adjusted for non-cash
items, and takes into account the cost of capital invested by Hang Seng's
shareholders. For the year 2004, economic profit was HK$7,297 million, an
increase of HK$2,296 million, or 45.9 per cent, over last year. This was
attributable to the growth of HK$1,637 million in profit after tax (adjusted for
non-cash items) and the reduction of HK$659 million in cost of capital,
following management's decision to revise the capital cost from 15.0 per cent to
11.6 per cent to reflect changes in long-term interest rates and equity risk
premia. The trend of economic profits in the analysis indicates that Hang Seng
continues to create value for its shareholders.
 
                                                         Year ended31Dec
                                                      2004             2003
                                                  HK$m       %     HK$m       %

Average invested capital                        34,494           31,021

Return on invested capital^                     11,286    32.7    9,649    31.1
Cost of capital                                 (3,989)  (11.6)  (4,648)  (15.0)
Economic profit                                  7,297    21.1    5,001    16.1

^Return on invested capital represents profit after tax adjusted for non-cash
items.

Consolidated Cash Flow Statement

                                                               Year ended 31Dec
Figures in HK$m                                                 2004       2003

Net cash inflow from operating activities                     17,632     33,566

Cash flows from investing activities

Purchase of an interest in an associated company              (1,634)         -
Dividends received from an associated company                     21         24
Purchase of long-term investments                            (61,039)   (98,041)
Proceeds from sale or redemption of long-term investments     39,337     69,710
Purchase of tangible fixed assets                               (148)      (142)
Proceeds from sale of tangible fixed assets                      181         35
Interest received from long-term investments                   3,258      2,496
Dividends received from long-term investments                    131         56
Net cash outflow from investing activities                   (19,893)   (25,862)

Cash flows from financing activities
Dividends paid                                                (9,750)   (10,324)
Net cash outflow from financing activities                    (9,750)   (10,324)

Decrease in cash and cash equivalents                        (12,011)    (2,620)

Cash and cash equivalents at 1 January                        77,575     76,817
Effect of foreign exchange rate changes                        1,487      3,378
Cash and cash equivalents at 31 December                      67,051     77,575


Financial Review

Net interest income

Figures in HK$m                                              2004          2003

Net interest income                                         9,690        10,179
Average interest-earning assets                           474,219       446,978
Net interest spread                                          1.97%         2.21%
Net interest margin                                          2.04%         2.28%

Net interest income decreased by HK$489 million, or 4.8 per cent, compared with
2003 although average interest-earning assets grew by HK$27.2 billion, or 6.1
per cent. Net interest margin narrowed by 24 basis points to 2.04 per cent with
a reduction in net interest spread of 24 basis points to 1.97 per cent.
Contribution from net free funds remained at the same level of 0.07 per cent as
last year.

Spreads on HK dollar deposits fell by 7 basis points, or HK$332 million, as in
the low interest rate environment, the bank was unable to reduce deposit rates
paid to customers. With abundant market liquidity there was also fierce market
competition in the mortgage sector, with a consequent reduction in portfolio
yields and an increase in incentive payments. The surplus liquidity also
depressed corporate lending margins which fell by 6 basis points. The average
spread of the securities portfolio fell as higher yielding papers matured and
were replaced at lower yields.

The negative impact of the above on net interest income and net interest margin
was mitigated by the growth in average interest earning assets of 6.1 per cent
and a change in the asset mix as the bank sought diversification of the loan
portfolio to higher yielding card and personal advances, trade finance and SME
loans. Investment in debt securities increased by 20.1 per cent as funds were
re-deployed from short-term interbank placings to debt securities for yield
enhancement.

The impact of the individual factors on net interest income and net interest
margin is analysed below:

                                                            HK$m   Basis points
                                                    Net interest   Net interest
                                                          income         margin

Repricing of higher yielding debt securities                (474)           (10)
Reduction in deposit spread                                 (332)            (7)
Fall in mortgages portfolio yield                           (285)            (6)
Compression in corporate loan margin                        (285)            (6)
Change in average asset mix                                  238              5
Growth in average interest-earning assets                    649              -
                                                            (489)           (24)

The average yield on the residential mortgage portfolio, excluding GHOS
mortgages and staff loans, fell to 202 basis points below BLR for 2004, before
accounting for the effect of cash incentive payments. This compared with 177
basis points below BLR in 2003. Cash incentive payments on new mortgage loans of
HK$157 million have been written off against interest income in 2004, compared
with HK$130 million in 2003.

Compared with the first half of 2004, net interest income in the second half of
2004 improved by HK$268 million, or 5.7 per cent, with a 5 basis points increase
in net interest margin to 2.07 per cent. Net interest spread increased by 4
basis points to 1.99 per cent and contribution from net free funds rose by 1
basis point to 0.08 per cent. Deposit spreads improved due to higher market
interest rates in the second half of the year, which in turn benefited the
contribution of net free funds. Growth in customer advances and higher interest
recoveries from doubtful accounts also contributed to the increase in net
interest income in the second half of the year.

Other operating income

Figures in HK$m                                        2004      2003

Dividend income:
- listed investments                                     44        52
- unlisted investments                                   52        40
                                                         96        92
Fees and commissions:
- securities/stockbroking                               560       361
- retail investment products and funds 
  under management                                    1,502       996
- insurance                                             102        82
- account services                                      214       211
- remittance                                            125       132
- cards                                                 614       551
- credit facilities                                     240       231
- import/export                                         256       223
- other                                                 136       117
Fees and commissions receivable                       3,749     2,904
Fees and commissions payable                           (409)     (349)
                                                      3,340     2,555
Dealing profits:
- foreign exchange                                      975       764
- securities and other trading activities                50        43
                                                      1,025       807
Insurance underwriting                                1,310     1,144
Rental income from investment properties                202       210
Other                                                   390       390
                                                      6,363     5,198

Other operating income recorded strong growth of HK$1,165 million, or 22.4 per
cent, and contributed 39.6 per cent of total operating income compared with 33.8
per cent in 2003.

Net fees and commissions benefited from private investor sentiment and a buoyant
stock market, with net income rising 30.7 per cent, driven by strong growth of
55.1 per cent in securities broking and related services, 50.8 per cent in
retail investment products and funds under management, and 6.7 per cent in card
services. Trade services rose 14.8 per cent on the back of strong regional trade
flows.

Dealing profits grew 27.0 per cent, mainly in foreign exchange income. This was
the result of the improvement in proprietary trading, growth in corporate
treasury services and the increase in profit on market-linked investment
products provided to customers. Insurance commissions and underwriting profit
together grew by 15.6 per cent. Life insurance underwriting profit grew by 22.3
per cent following a growth of 43.5 per cent in annualised premium from a wider
range of products with enhanced protection and investment returns.

Analysis of income from wealth management businesses included in other operating
income

Figures in HK$m                                       2004        2003

Investment income:
- retail investment products and funds 
  under management                                   1,502         996
- securities/stockbroking                              560         361
- margin trading                                        66          55
                                                     2,128       1,412
Insurance income:
- life (including embedded value)                    1,041         851
- general and others                                   269         282
                                                     1,310       1,133
Total                                                3,438       2,545

Income from wealth management grew strongly by 35.1 per cent to HK$3,438
million, representing 54.0 per cent of total other operating income, boosted by
50.7 per cent growth in investment services income and 22.3 per cent growth in
life insurance income.

Income from retail investment products and funds under management increased by
HK$506 million, or 50.8 per cent, reflecting the bank's successful product
strategy of structuring products to meet specific customer investment needs.
This resulted in an increase of 29.8 per cent in the sales of investment funds
and structured products, including capital guaranteed funds, unit trust funds
and structured instruments linked to the foreign exchange, equity and interest
rate markets.

Of particular note was the expansion of the Hang Seng series of investment funds
which added 29 funds structured to capture growth potential in the global, Asia,
Hong Kong and mainland China equities markets, as well as the commodity and
property markets. Private banking business continued to expand in terms of
customer base, product range and investment portfolio. Total funds under
management, including discretionary and advisory, grew by HK$32.1 billion, or
55.4 per cent, compared with the end of last year.

Income from stockbroking and related securities services rose by 55.1 per cent
compared with last year, reflecting the growth in stock market activities.
Riding on the buoyant stock market and large IPO issues, promotional campaigns
were launched to grow securities accounts and boost trading turnover.

The growth momentum of the life insurance business continued, further
penetrating the bank's large customer base. The launch of new products providing
enhanced protection and investment benefits, together with targeted marketing
campaigns, boosted annualised premium growth by 43.5 per cent. Underwriting
profits (including embedded value) grew 22.3 per cent. General insurance income,
however, fell by 4.6 per cent due to higher claims for certain types of
insurance.

Operating expenses

Figures in HK$m                                     2004          2003

Staff costs:
- salaries and other costs                         2,018         1,860
- retirement benefit costs                           169           183
                                                   2,187         2,043
Depreciation                                         317           329
Premises and equipment:
- rental expenses                                    178           178
- other                                              677           629
                                                     855           807
Other operating expenses                             864           723
                                                   4,223         3,902

Cost:income ratio                                   26.3%         25.4%

Staff numbers by region^
                                                    2004          2003

Hong Kong                                          7,229         7,076
Mainland and others                                  313           204
Total                                              7,542         7,280

^Full-time equivalent

Operating expenses increased by HK$321 million, or 8.2 per cent, to HK$4,223
million. Staff costs increased by HK$144 million, or 7.0 per cent, mainly due to
the increase in average headcount number and the provision for performance based
staff bonuses. Depreciation reduced by HK$12 million, or 3.6 per cent, while
premises and equipment expenses rose by HK$48 million, or 5.9 per cent, mainly
due to the increase in IT expenditure. Other operating expenses rose by HK$141
million, or 19.5 per cent, mainly in marketing expenditure to support the
increased focus on the sale of personal investment products and card services,
and processing costs as further activities were outsourced to Group service
centres in Guangzhou and Shanghai.

Full-time equivalent staff (FTEs) increased by 262 in 2004, mainly to support
the expansion on the Mainland where one new sub-branch was opened in Shanghai
during the year and where new licences were obtained to conduct renminbi
business in the Shenzhen and Fuzhou branches. Staff increases were also noted in
personal financial services, where 80 financial planning managers were added as
part of the strategy to develop customer structured solutions. During the year,
further back office processes, including cards, phone banking and trade finance
with a total 129 FTEs were migrated to Group service centres.

The cost:income ratio in 2004 was 26.3 per cent (25.4 per cent in 2003).

Provisions for bad and doubtful debts

Figures in HK$m                                         2004      2003

Net charge/(release) for bad and doubtful debts
Advances to customers
Specific provisions:
- new provisions                                         464     1,167
- releases                                              (357)     (315)
- recoveries                                            (109)      (54)
                                                          (2)      798
General provisions                                      (812)       (6)
Net (release)/charge to profit and loss account         (814)      792

Provisions for bad and doubtful debts showed a net release of HK$814 million
compared with a net charge of HK$792 million for last year. Specific provisions
showed a net release of HK$2 million against a net charge of HK$798 million for
the previous year. This was the combined effect of the reduction of HK$703
million, or 60.2 per cent, in new and additional provisions and an increase of
HK$97 million, or 26.3 per cent, in releases and recoveries. Credit card losses
reduced significantly, as bankruptcy and unemployment rates continued to fall.
There was a net release of mortgage provisions, reflecting lower delinquency
levels, reduced negative equity and larger recoveries from disposal of
repossessed properties. This reflected the strong rally in property prices and
improvement in debt servicing capability in an improving economic environment.
Corporate accounts also showed a net release as new and additional provisions
reduced significantly, following the improvement in the financial position of
corporate customers. A total of HK$812 million was released from general
provisions during the year in light of historical loss experience and the
improving credit environment.

Profit on tangible fixed assets and long-term investments

Figures in HK$m                                                    2004    2003

Profit on disposal of long-term equity investments
- realisation of amounts previously recognised in 
  revaluation reserves at 1 January                                 371     418
- gains/(losses) arising in current year                             35      (8)
                                                                    406     410

Profit less loss on disposal of held-to-maturity debt securities     (4)     48
Profit less loss on disposal of tangible fixed assets                30       3
                                                                    432     461

Profit on disposal of tangible fixed assets and long-term investments fell by
HK$29 million, or 6.3 per cent, to HK$432 million, being the net result of the
lower profit on disposal of debt securities and equities, and the increase in
profit on disposal of investment properties.

Taxation

Taxation in the consolidated profit and loss account represents:

Figures in HK$m                                                   2004     2003

Current tax - provision for Hong Kong profits tax
Tax for the year                                                 1,534    1,443
Over-provision in respect of prior years                           (12)     (39)
                                                                 1,522    1,404
Current tax - taxation outside Hong Kong
Tax for the year                                                     7        4
Over-provision in respect of prior years                             -      (14)
                                                                     7      (10)
Deferred tax
Origination and reversal of temporary differences                  179       70
Effect of increase in tax rate on deferred tax 
  balances at 1 January                                              -       (9)
Benefit of previously unrecognised tax losses now recognised         -      (36)
                                                                   179       25
Share of associated companies' taxation                             56        4
Total charge for taxation                                        1,764    1,423

Effective tax rate                                                13.2     12.8

The current tax provision is based on the estimated assessable profit in 2004,
and is determined for the bank and its subsidiaries operating in the Hong Kong
SAR using the Hong Kong profits tax rate of 17.5 per cent (17.5 per cent for
2003). For subsidiaries and branches operating in other jurisdictions, the
appropriate tax rates prevailing in the countries in which they operate are
used.

Deferred tax is calculated at the tax rates that are expected to apply in the
year when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the profit and loss account, except when it relates to
items charged or credited directly to reserves, in which case the deferred tax
is also dealt with in the reserves. The carrying amount of deferred tax assets/
liabilities is reviewed at each balance sheet date and is reduced to the extent
that it is no longer probable that sufficient taxable profit will be available
to allow the related tax benefit to be utilised.









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